Prof. Carol Propper: Lessons from experiments in competition and choice in healthcare supply in England and Europe

Lessons from experiments in
competition and choice in healthcare
supply in England and Europe
Carol Propper
Imperial College London
VATT Helsinki
1 November 2016

The background: the healthcare sector
• Characterised by growth in expenditure over
time long period which tends to outstrip GDP
growth
• Large amount of innovation, but innovation
tends to be cost increasing (as well as
enhancing quality)
• Policy makers therefore concerned about cost
and productivity
© Imperial College Business School

The healthcare sector

The healthcare sector
• Two ways to tackle cost growth
• Demand side: Alter the incentives facing the
consumer
• Supply side: Alter the incentives for the supplier
• Demand side changes tend to increase the
prices facing consumers to make them more
responsive but may have undesirable equity
consequences
• Use is limited in European context

Supply side reforms
• Aimed at altering incentives for provider
organisations, clinicians and insurers
• One favoured approach in Europe is to
introduce market mechanisms into heavily
regulated (and often centralised) systems
• Components are
• Decentralisation of decision making
• Promotion of competition between suppliers
• Changes in payments/incentives

Outline of talk
Does competition and choice work in a heavily
regulated systems?
• Definition
• Lessons from the UK
• The reform agenda in the UK
• Summarise recent empirical studies to see
what the evidence suggests
• Overview of other European policy changes

Definition
• In healthcare can have either competition on
insurer side and/or competition on provision
side
• Both: USA, the Netherlands (started with the
insurance side); Switzerland (very regulated);
Germany
• Provider only – UK; Nordic countries
• Focus here on healthcare supply (not
insurance)

Evidence from the UK
The UK
Several large experiments in introducing
competition on supply side

The Blair pro-choice reforms
• Mid-2000s introduced a policy of ‘choice and
competition’ In England
• Key elements of the reform
• Freedom for patients to choose hospital of care
• Shift from selective contracting to administered, centrally
fixed prices (for around 70% of hospital activity)
• Greater autonomy for well performing hospitals (retain
some surpluses; greater freedom over investment
decisions)

What happened?
• Did the reforms change behavior and market
structure?
• Did this have any effect on outcomes, processes,
productivity, equity?

Behaviour and market structure: choice
• Patient knowledge of choice
• Around 50% of patients recalled being offered choice
within two years of the reform
• But also a view from some GPs that their patients did
not want (or need) choice
• Increasing evidence that patients can choose on
the basis of quality (as well as distance)
• evidence from choice of GPs; elective hip
replacement surgery; heart surgery (CABG)
• better hospitals attracted more patients post-
reform (CABG surgery; hip replacements)

Better hospitals attracted more patients (Gaynor et al)
Imperial College Business School ©
Quality (AMI mortality rate 2003)
Bottom quartile Top quartile
2003 2007
%
change
(2003-
07) 2003 2007
%
change
(2003-
07)
Number of elective
admissions
33,985 38,274 12.6% 41,398 45,132 9.0%
Average distance
travelled by
patients
11.4 11.7 2.4% 10.0 10.1 1.1%
Share of patients
bypassing nearest
hospital
0.37 0.39 5.4% 0.45 0.43 -4.4%
Number of
hospitals
33 33 32 32
Source: Gaynor et al Free to Choose

Change in market structure (actual provider HHI)

The impact on quality and process
Quality (most evidence)
• Mortality rates - fell and fell by more in less
concentrated markets (AMI, 2 studies) (heart surgery:
hospitals with higher quality elasticity had higher falls
in mortality)
• One study (AMI) gains pre-dated policy
• Other measures of patient gain (PROMS for elective
hips, knees)– no clear effect and/or positive effects

The impact on quality and process
Productivity
• Less evidence
• Length of stay fell in less concentrated markets post
reform
• No evidence of greater spending
Access/inequality
• Little evidence of differential effects by income
(deprivation of local area)
• 2016 evidence that waiting time gap between richer and
poorer areas fell over the period of the policy

How did the reforms bring gains?
• Relatively little study of the mechanisms by which
competition might bring benefits
• One approach has been to study the relationship
between competition and management

Competition and management (Bloom et al 2010)
Competition and Management in Public Hospitals
17

Motivation
• Management has been shown to result in greater
firm productivity
• Economies which are competitive have better
management
• Is this the case in hospitals?

• Bloom et al (2015) use a well tried measure of
management quality and look at the
relationship with competition
• Find that better management is
• Associated with a range of better outcomes (quality,
financial performance, waiting times, staff satisfaction
and regulator ratings)
• Management is better in hospitals facing more
competition

MY (co-author’s) FAVOURITE QUOTE:
Don’t get sick in Britain
Interviewer : “Do staff sometimes end up doing the wrong sort
of work for their skills?
NHS Manager: “You mean like doctors doing nurses jobs, and
nurses doing porter jobs? Yeah, all the time. Last week, we had
to get the healthier patients to push around the beds for the
sicker patients”

Evidence from UK Hospital consolidation

• US evidence: consolidations raise prices, mixed
impact on quality, reduce costs only slightly
(Vogt 2009)
• Is this the same for a public system?
• 1997 onwards UK experienced a wave of hospital
reconfigurations
• Over half of acute hospitals were involved in a reconfiguration
with another trust
• Median number of hospitals in a market fell from 7 to 5
• What was the impact on hospital production?
Evidence from UK Hospital consolidation

• Gaynor et al (2012) find that consolidations
resulted in:
• Lower growth in admissions and staff numbers but no
increase in productivity
• No reduction in deficits
• No improvement in quality
• Summary - costly to bring about with few visible
gains other than reduction in capacity

What do we know from the UK experiment?
• Impact of reforms appears positive
• Patients and hospitals appear to have responded
• Better hospitals attract more patients
• Quality rose without an increase in expenditure
• Some of this might be due to increased managerial
effort
• Merger policy appears to have opposite effect
• But ……

Lessons and emerging Issues from UK
• Design issues in maintaining competition
• Need to ensure mergers (networks) do not remove all
competition and that market regulation does not
become command and control by another name
• Large political push back
• Impact on overall expenditure is small; competition
between public hospitals is seen as privatisation;
choice is seen as a luxury in tough financial times

Evidence from other European countries
The Netherlands
• Since 2006 several policies implemented to
strengthen provider competition
• Insurers negotiate with providers on price
• Allowed to selectively contract
• Growth of networks

The Netherlands
• Evidence limited by lack of data (Varkevisser 2016)
• Some evidence that patients choices reflect quality in
primary care
• Little empirical evidence on the effects of hospital
competition on prices and quality due to data
limitations
• Halbersma et al. (2011) - preliminary evidence that hospitals’ market shares
have a significantly positive impact on the hospital price–cost margin
• Heijink et al. (2013) - cataract surgeries 2006-2009 - (i) negotiated prices did
not converge after introduction of price competition (ii) at the hospital level
prices were not associated with quality (iii) volume increased strongly.
• Large amount of consolidation on both insurer and
hospital sides of market

Germany
• Since 1990s Germany introduced a number of
competitive elements into its public health care
system
• Sickness funds were given some freedom to
sign selective contracts with providers
• Competition between ambulatory care
providers and hospitals was introduced for
certain diseases and services

Germany
Evidence limited
• Took time for sickness funds to use their powers
(needed further financial incentives and mandates)
• Increased hospital mergers (182)
• Some evidence that selective contracting has
improved quality of care (particularly in ambulatory
care)
• The evidence also points to cost increases (at least in
the short run)
• Few studies evaluate the effects on both outcomes
and costs with good data (Kifmann 2016)

Norway
• Several reforms in the last two decades
introduced potential for competition at both
primary and secondary care level
• Implementation of patient choice and activity
based funding (similar to UK)

Norway
• Empirical studies for primary care show patients
exercise choice and quality may rise as a result of this
• Evidence for secondary care is weak and inconclusive
• Brekke and Straume (2016) argue incentives limited:
• Price incentives muted by hybrid payment scheme which caps
the DRG price (50%)
• Dual purchaser-provider role of the regional health authorities
(RHAs) allows them to control competition
• Corporatisation of public provision and more use of
private providers should strengthen potential for
competition

Conclusions
• European countries experimenting with
increasing role for ‘market signals’
• Relatively little empirical evidence on prices and
quality (because of lack of data)
• Large amount of merger activity
• Exact design parameters matter a lot
• Regulatory authorities need to prevent markets
becoming monopolies

The evidence from the UK
THANK YOU

Prof. Carol Propper: Lessons from experiments in competition and choice in healthcare supply in England and Europe

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